Lazard Ltd (LAZ) Q3 2019 Earnings Report, Transcript and Summary

Good morning and welcome to Lazard's Third Quarter and Nine Months 2019 Earnings Conference Call. This call is being recorded. At this time, all participants are in a listen-only mode. [Operator Instructions] At this time, I will turn the conference over to Alexandra Deignan, Lazard's Head of Investor Relations. Please go ahead.

Thank you, Paul. Good morning and welcome to Lazard's Earnings Call for the third quarter and first nine months of 2019. I am Alexandra Deignan, the company's Head of Investor Relations. In addition to today's audio comments, we have posted our earnings release and an investor presentation, which you can access on our website at www.lazard.com. A replay of this call will also be available on our website later today. Before we begin, let me remind you that we may make forward-looking statements about our business and performance. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from those expressed or implied by the forward-looking statements, including, but not limited to, those factors discussed in the company's SEC filings, which you can access on our website. Lazard assumes no responsibility for the accuracy or completeness of these forward-looking statements and assumes no duty to update these forward-looking statements. Today's discussion also includes certain non-GAAP financial measures that we believe are meaningful when evaluating the company's performance. A reconciliation of these non-GAAP financial measures to the comparable GAAP measures is provided in our earnings release and investor presentation. Hosting our call today are Kenneth Jacobs, our -- Lazard's Chairman and Chief Executive Officer; and Evan Russo, Chief Financial Officer. They will provide opening remarks, and then we will open-up the call to questions. I'll now turn the call over to Ken.

Good morning. In the third quarter, we continue to navigate a mixed macroeconomic environment. Trade and geopolitical uncertainty persisted and global equity markets were volatile. Nonetheless, our financial advisory activity gained momentum. Our global volume of M&A announcements for the third quarter and past six months increased significantly from a year-ago, even as the markets volume decreased. Our North American M&A business remain strong and our European announcements have increased as well. These included a number of sizable U.K transactions despite the uncertainty around Brexit. Our other financial advisory practices remain active globally. In restructuring, we continue to advise on large complex assignments. Our shareholder advisory practice is winning assignments around the world and is an important component of our M&A advisory work. Our Capital and Sovereign Advisory businesses remain active, advising corporations and governments on financing strategy and capital raising. In asset management, our average AUM for the third quarter was $234 billion, up slightly from the first half of the year. At quarter end, our AUM was about 8% higher than the start of 2019. Institutional rebalancing and derisking have continued to affect our business as we experienced net outflows mostly in emerging market strategies. Overall, our investment performance continues to be strong across a range of our platforms. We continue to manage our firm proactively with a discipline on costs. And in the third quarter, we initiated business realignment to create greater flexibility to accelerate investment in our businesses. In financial advisory, future growth opportunities include the expansion of our footprints in North America, where we see a significant amount of white space and we are focused on building momentum in our non-M&A advisory practices globally. In asset management growth opportunities, include reinvesting in key product areas where we believe we can provide an investment edge and the expansion of our Cloud strategies, ESG and investment solutions globally. Firm wide, we continue to make substantial investments in our technology and data science platforms. We're implementing new capabilities and tools across both asset management and financial advisory to enhance our competitive edge and drive growth. Thanks to our scale and strong cash flow. We can make these investments through business cycles even as we return substantial capital to shareholders. Evan will now provide color on our results and then I will comment on our outlook.

Thank you, Ken. Financial Advisory third quarter operating revenue of $304 million was approximately even with last year's level. This reflected an increase in completions across the Americas, offset by a decrease in Europe and Asia. Asset Management operating revenue of $283 million was down 6% from last year. On a sequential basis, it decreased 3% from the second quarter of this year. Average AUM for the third quarter was $234 billion, down 3% from a year-ago. On a sequential basis, average AUM was down 1% from the second quarter of this year. We finished the third quarter with AUM at $231 billion, reflecting negative foreign exchange movement of $4.4 billion and net outflows of $4.4 billion, offset by market appreciation of $2.2 billion. The net outflows were primarily from our emerging market strategies and both equity and fixed income. The outflows were partially offset by net inflows in global equity strategies and in global and multiregional fixed income. As of October 25, AUM increased to $235 billion, driven by market appreciation of $2.2 billion and positive foreign exchange movement of $2.1 billion, partially offset by net outflows of $400 million. Looking ahead across our franchise. In Financial Advisory, we continue to expect the second half of 2019 to be stronger than the first half. Our current level of activity is higher than at this time last year, which bodes well as we enter 2020. In asset management, relative performance continues to be strong across most of our platforms. But we expect to see ongoing pressure on equity flows in the near-term. Turing to expenses. We are maintaining our cost discipline. In the third quarter, we conducted a review of our business that resulted in a realignment, including employee reductions and the closing of subscale offices and investment strategies. The employee reductions involve approximately 200 people across financial advisory, asset management and corporate functions. Most of the realignment occurred in the third quarter and we expect it to be completed in the fourth quarter. These actions resulted in an expense of $51.5 million in the third quarter, which is excluded from our adjusted results. Regarding compensation expense, we continue to accrue at a 57.5% adjusted compensation ratio in the third quarter. Non-compensation expense for the third quarter was $125 million, reflecting business development expenses and continued investments in our technology platforms. Our effective tax rate in the third quarter as adjusted was 16.6%. This rate reflects the benefit from discrete items in the quarter on lower income levels. Our effective tax rate for the first nine months of the year was 21.7%. We continue to expect an annual effective tax rate for this year in the mid 20% range. Turning now to capital allocation. In the third quarter, we returned $130 million of capital to shareholders, which included $79 million in share repurchases. For the first nine months, we returned $733 million to shareholders, which included $430 million in share repurchases. During the first nine months of 2019, we repurchased 11.9 million shares, which included 2.2 million shares in the third quarter. This led to an 11% year-over-year decline in our third quarter diluted weighted average share count from a 130 million shares to 160 million shares. We expect to continue our share repurchase program, utilizing our cash flow from operations. Our total outstanding share repurchase authorization is now $437 million, following yesterday's additional authorization by our Board of Directors. Ken will now conclude our remarks.

Thank you, Evan. Overall, the global macroeconomic environment remains constructive, despite continuing trade and geopolitical uncertainties. In the U.S., the economy remains reasonably strong and consumer spending is healthy. In the Eurozone growth is expected to be modest this year and into 2020. Fundamentals for global equity markets are steady and credit conditions remain favorable. The forces driving strategic activity remain in place. Technology driven disruption continues to be a catalyst for M&A across industries. Shareholder activism continues to evolve globally and more than half of the capital deployed in activist campaigns this year has an M&A thesis. In Europe, our conversations with clients indicate some pent-up demand that could accelerate strategic activity over the next year. Lazard's strong presence in Europe positions us well for this. In asset management, our investment platforms are broadly diversified across asset classes, styles and regions. The longer-term outlook remains positive as our franchise continues to serve clients with innovative investment solutions, that position the business well for the future. In both our businesses, we've taken actions to align our operations with the growth opportunities we see. We continue to invest in our people, capabilities and technology infrastructure. We remain focused on serving our clients well, while we manage the firm for profitable growth and shareholder value over the long-term. Let's open it up to questions.

Thank you. [Operator Instructions] We will now take our first question from Richard Ramsden from Goldman Sachs. Please go ahead. Your line is open.

Okay. Good morning, everyone. Could you just expand a little bit more on the deal environment in Europe? I know on the -- you just said that the environment was pretty positive, but in the release you talked about a weakness in the region. Activity does seem to be up a lot in the last couple of months. So should we just think about this as a timing issue in Q3 with activity picking up in Q4, or are there some other dynamics we should be aware of?

A lot packed into that question. So let's just talk about our own experience so far and then we talk a little bit about the market. Our own experiences, we've had a pretty significant pickup activity across the board on announcements in the second half of the second quarter into the third quarter and now into the fourth quarter in both North America and in Europe. In Europe, in particular, we saw a real slowdown in activity in our -- on our part in the second half of 2018, really beginning in June and throughout the rest of the year. And that actually accounts for some of the softness in the advisory performance in the first half of this year and even into the third quarter. We had very strong performance in North America during the same period of time. The actual environment in Europe for deals is kind of mixed right now and I don't know which statistics to really focus on. But I think, overall, I'd say, our volume on announcement seems to be significantly higher than the market, but it has improved a bit. Conversations, I'd say, are ongoing. And it's a little bit as I described pent-up demand because there was a halt in acquisitions and activity in the second half of last year. But again, it's kind of a mixed environment because of the macroeconomic situation.

Okay. That’s very helpful. The second thing is you’ve had a number of senior management departures over the last few months. Can you just talk a little bit about that? Is that part of the restructuring? Is that just part of the ordinary course of the business? And would you expect any near-term disruptions as a result of those departures in the business?

I think this is normal course. I mean, you have the beauty of the Lazard franchise is greater than any one person. This is a franchise, which has gone through change in generations on multiple times and comes out of each one of those in a stronger position. An I expect it will be the same this time.

Okay. Thanks very much.

Our next question comes from Devin Ryan from JMP Securities. Please go ahead. Your line is open.

Great. Good morning, everyone.

Good morning.

First question here is just on the asset management business and the restructuring that I guess was announced over the quarter. How should we think about the financial impact on revenues and expenses? And then, is there a point where you would do more in that segment as some of the industry headwinds don’t abate, or you feel like where you kind of or post some of those actions in the quarter, kind of your way you want to be in the business?

Evan, you want to take the first part, And I will touch on the second.

Sure. So let's start, I mean with the business realignment that we've been talking about quarter-over-quarter, I mean really started a couple of months back where we started to take a hard look at our business, given the current environment and the results and the revenues. And really wanted to identify underperforming businesses, strategies, subscale areas and office and individuals. So we took a hard look at our business top down both sides of the business, not just asset management, but really across the entire business and decided really where we wanted to have opportunities for growth. So part of this was cost discipline being prudent in the environment, but the -- probably more important piece was to create flexibility to continue investing in areas where we see significant opportunity. So we’ve spent a lot of time in the past couple of quarters talking about where we’ve already started to focus our energies and our efforts and our resources around some of the quant [ph] strategies to build out there around some ESG as Ken pointed out this morning as well and other alternatives platform build out. So areas where we see greater opportunity for the future, and this part of what we were doing now is just really creating some flexibility to continue to make stronger investments in that. I think from a revenue perspective to your question about the asset under management, the subscale strategies we are talking about most of them were pretty small. We would expect it would be approximately maybe 300 million to 400 million of AUM associated with all the strategies that were being closed down somewhere in that range likely to be occurring mostly in Q4. But again, a lot of this is about self funding and thinking about how we can continue to invest for growth.

Okay, great. And just a follow-up on the prior question, some of the commentary around just the advisory backdrop. I’m just trying to get maybe a little bit more flavor for kind of the cadence of activity and how that’s being evolving? Clearly, the tone sounds better today than it did six months ago or a year-ago. I’m just trying to get a sense of, are we kind of back to something that feels more normal to you? Is this a better backdrop than we’ve been in some time, just as you’re kind of getting the pent-up activity in Europe with the U.S., maybe getting back on more normal footing here kind of post the fourth quarter disruption last year. Just trying to get a little bit more flavor for the cadence there? And then, if you can, just maybe touch on some of the non-M&A businesses like restructuring. And it sounds like activism defense is quite active. So just a little bit more detail there as well.

Sure. Okay. So let me just speak into our individual performance. I think just sort of it feels like we’ve hit one of those moments in time where we’re probably outperforming the market a bit. Certainly, when we look at our announcements in the second half of the second quarter into the third quarter now, it feels like we have a little bit better momentum than the markets do, that’s kind of nice. That was not the case last fall when we saw things start to fall off. So that’s nice. And that’s kind of the ups and downs of the business. I think, overall -- I think the market for M&A is okay. It's not great, it's not awful. It's okay. It's an okay period. And the factors that are driving I think are the -- we think are the following. First, this underlying catalyst that is disruption from technological change is really evident in almost everything that is going on in the M&A environment today and is very pervasive throughout boardrooms and very much on CEOs minds. Second is, you obviously have this very strong activity around activism, probably more than half of the activists campaigns today are driven around the M&A themes. So that's another catalyst for activity. A third one, which is early, I'd say, it's emerging. I don't think it's quite there yet in terms of driving activity, but that’s something to keep an eye on is ESG. This has become a factor, which is very important in Europe, in investors' minds, it is increasingly becoming more pervasive in U.S. Obviously, we're seeing it in our asset management business and you can see the investments we've made there. I think increasingly this is becoming a topic for boardroom discussions and ultimately it's probably going to become a topic around portfolio alignments in terms of businesses, where to invest, or not to invest. I don't think it's today a factor yet, but it's something that I think we all should keep an eye on with regard to M&A. And then you have the three traditional factors, sort of CEO confidence, credit and equity valuations. And I think in terms of CEO confidence, frankly kind of mixed. I think the geopolitical environment, the macro environment is, it gives them a little bit of pause. The trade wars have really made people think very carefully around investment and also supply chain. Ultimately that probably will have some implications from an M&A perspective, but it does give people some pause. Overall, though, this technology disruption, the underlying pressure from shareholders and activists around M&A, those are probably still positive catalysts from a confidence perspective. When you think about credit, credit conditions are as positive as I think they’ve been. Credit is still widely available. It's that -- rates are very, very low. Negative in some cases, financing for -- certainly for investment-grade companies is almost limitless at the moment. And for noninvestment grade still strong, private capital, private debt is still widely available, and sponsor activity is still very high as a result of that. And then, finally on equity valuations, it's kind of a mixed picture. There are some sectors that look really overvalued or fully valued. And then there are other sectors that seem to see a bit undervalued, but of course that’s all relative to what people expect in the macroeconomic cycles. So my takeaway from all this is that the M&A environment remains reasonable, constructive, it's okay. It's kind of -- its going to -- I think there's going to continue to be a reasonable amount of activity. And just from our own standpoint, I think our general feeling is, is we feel much better or better today about the first half of next year than we did probably sitting at this time last year.

Appreciate all the detail. Thanks again.

Welcome.

Our next question from Steven Chubak from Wolfe Research.

Hi. Good morning. So I wanted to …

Hi, Steven.

… off with a question for -- hey, how is it going? I wanted to start off with a question for Evan. I appreciate you quantifying the $300 million to $400 million of AUM strategies that will be impacted by the realignment. I was hoping you could speak to the cost savings, or maybe resource free up associated with the collective headcount actions. And in that same vein, given that the non-comps were a little bit higher than we had expected, I know you’ve talked about higher investment. How should we think about the pace of non-comp growth as you try to balance some of those efforts to realign the businesses with the need to continue to reinvest, to continue to drive growth?

Sure. So let's start with the non-comp piece for a second. So, non-comp the -- run rate non-comp we've been having probably for the last four quarter is approximately $125 million. We had about $125 million in this quarter. That elevated spend that we've been talking about is the continued rolling in, a lot of it is technology -- technology-related -- technology costs, they can start to continue to amortize down some of that costs comes into our financials. Additionally, we had marketing and business development expense of this quarter as we're continuing to drive the client marketing, client pipeline ahead especially in financial advisory. Look, as we’ve said, we expect the non-comp range to be at approximately that level, perhaps even going a little higher, due to the technology that's coming on board for the next several quarters. And I would say that the -- the focus on the business realignment that we announced this morning, I think that won't have a much significant impact on the non-comp side. It's a possibility as we close a couple of small-scale offices, those don’t have significant non-comp against it. But there should be a little bit of savings as you get further into 2020 on that basis. But again, overriding it, the big piece of that is more the savings, or the ability for us to continue to invest with the proceeds, or with the net available from the reduction in the headcount. So the headcount is the bigger piece of it. The non-comp is a much smaller piece of it. I'd say with regards to the financial advisory business, I'd say across the board, you mentioned asset management, yes, of $300 million to $400 million of AUM flows. I think the waiver, again, thinking about this is more where can we create flexibility to continue investing for growth. So it's not really about run rate savings to us. It's where counterbalancing that is the recent continued expected growth and hiring that we’re doing. So just to put that in perspective, we expect to be year-end to be -- I would say, approximately or within 1% of last year's ending headcount. So we’ve been continuously hiring over the past year and, frankly, over the last several years, but it's all about making sure that we have the right people in the right spaces focused on the right efforts where we see the greatest opportunity.

Thanks, Evan. That’s very helpful color. And, Ken, probably the most detailed feedback we’ve gotten in terms of the M&A landscape, so I really appreciate it. All the helpful insights you provided. There were two areas I really want to dig into further that you didn't touch on, maybe to the same extent. One is restructuring, given some your competitors are citing a better restructuring backdrop, I wanted to see whether you're seeing something similar, recognizing the credit as you noted, is still widely available. And the second piece is the election impact. It feels like that’s an area where investors are concerned about the election uncertainty weighing on CEO confidence, you did note that that was waning somewhat, but didn't speak to that specifically. I don’t know if that was coming up in any of your conversations at all.

Sure. So on -- let me just touch on restructuring and also on shareholder advisory a little bit. These are probably the two and capital raising, three areas quickly. Restructuring, look, credit conditions remain strong, so we haven't really seen a shift yet in the restructuring cycle. But this we have seen as a result of technology disruption quite a bit of change in different industries. I mean, look, we had an enormous restructuring surge in 2015, that was really the shale revolution, which was really technological in nature. We've seen enormous amount of activity in the retail sector, which again is technology driven. And I think we are going to see that in other sectors as time goes on, it's just something to keep an eye on. Again, my point on ESG before on sustainability, you come back and you think about the impact of droughts that is you look at the impact of that on -- fires on the West Coast that has actually led to a major restructuring in PSG where we are quite active. And my guess is that will be a theme going forward, but overall the environment is -- continues to be active, but we haven't seen credit condition shift yet. So I don't think you’re going to see the pickup until you really see that happen. In terms of shareholder advisory, that that's just gone from strength to strength with us. For us, it's become a very important way to distinguish ourselves and distinguish our advice, and it's also been a way to really build new client relationships. And so we're really -- see that as an important growth factor prospective for us and one we really spent a lot of effort to build out and really distinguish. And then capital raising, our capital -- our private capital advisory business has been very active and that just reflects the amount of focus there is on the alternative sector and ways to raise money for those kinds of activities and where it -- I think in the center of that. So those are three really great businesses for us right now. Two of which are really active and the other, which I think is extremely well -- is obviously well positioned in the event we get a shift in credit cycle.

And the U.S election? Specifically how that’s [multiple speakers].

I knew you’re not going to let me off on that one. Well, look, honestly I think it's too early to tell. I mean, I’m not going to pick a candidate, but I think you can make arguments on any side of that one to think about how it could be disruptive to the geopolitical or the macro environment. I think, generally speaking, the market prices elections pretty well and pretty early. So we'll see what happens.

Except for the most recent one, of course. That [indiscernible], but I [multiple speakers].

Yes, sort of. Yes. Look, this is something -- I’m going to -- I think I will dodge the politics.

Fine. Fair enough. Okay. Just one more for me. I wanted to just get a sense, given I recognize, Evan, you seem reluctant to at least quantify some of the direct expense savings, but you did noted about a 7.5% headcount reduction. Should we assume average comp for employee when conducting that type of analysis, or because the headcount number is roughly the same versus the start of the year, that we shouldn't see any like meaningful direct dollar expense savings actually fall to the bottom line.

Yes. Yes, I think that’s the right way to look at it. I mean, I think we're looking at headcount staying basically flat year-over-year. Again, a lot of this is really just putting our chips in the areas that we wanted to continue to focus on. So we’ve continued to hire. This is us just creating room, creating flexibility to continue investing for that growth. We are not seeing this as a net investment savings. You quote about 7%, it's going to be approximately 200 employees, so call it somewhere 200 employees off of our base. So, somewhere in that range and again its across all three businesses and most of those headcount really come from the savings we have from closing of the subscale offices, which is a couple of those as well as some of the strategies. So very directly related to the areas, which we're -- we are taking -- we are cutting back.

Great. Thanks for taking my questions.

Thank you.

We will now take our next question from Jim Mitchell from Buckingham Research.

Hey, good morning.

Hi, Jim.

Just a -- hey. Maybe just a question on flows. I appreciate sort of the color that in the near-term till EM [ph] are under pressure, but you’re trying to grow some of your other products. How do you see -- when do you see that crossing over where maybe the outflows start to slow and the growth from the other investment start to outweigh the flows? Any kind of sense or help on that?

Yes, sure. Hey, Jim. It's Evan. Let me start. Look, we call that the EM platform was a big part of the net outflows in the quarter, specifically in the value part of our platform. We’ve talked in the past quarters about value being out of favor relative to growth and quality. And I think we are continuing to see that strength -- that trend. So value is certainly under pressure and favor. That said, I think we like to point to the positive performance. I'd say that this quarter specifically it was pretty lumpy. We had a few larger accounts that's sort of pulled out two larger accounts that made some changes in the quarter, that had a bigger impact on the net flow. So I think we're starting to see getting close there, but again it's lumpy and it's kind of continuing to trend. And so, it's a real question for us, the value part versus growth has been a big player, that’s shifting and derisking and rebalancing, we just sense that on the institutional side will continue for some period of time.

Okay. And any -- can you help us anyway whether its growth to net flows on the -- on sort of the other strategies that have been doing well, like, how they’ve been in the billion, hundreds of millions in terms of net flows?

Look, on the net flows basis, it's probably a couple -- it's hundreds of millions, it's not billions on some of the other strategies, in which we saw some of the net inflows.

Okay. That’s helpful. And just maybe one question on the advisory side. You’ve restructured to reinvest, I guess when do you see net and the headcount starting to turn positive next year? And where, I guess you mentioned North America, any thoughts of where you see the most opportunity there?

So the short answer to that is, yes. And that [indiscernible] headcount turning positive. And then with regard to where, I think you’re going to see it in two areas. One is some of the product efforts. So again, shareholder advisory PCA, some of the capital advisory businesses because these are being just really powerhouses for us to drive client relationships. And then second, there's probably some incremental investments in the U.S and then also some places in Europe as well where we see opportunity. There's a lot of white space for Lazard. We see it in the large-cap space, where is -- which is our real sweet spot, but we also see it in some of the mid cap and obviously the private equity or the sponsor space as well. So there's a lot of white space for us right now.

Okay. Thanks for answering my questions.

Our next question comes from Michael Brown from KBW.

Hi. Good morning.

Hi, Mike.

So I wanted to ask about -- just wanted to ask about capital return. So the buyback activity was a little below our expectations for this quarter, but obviously we saw the increase in the authorization from the Board. So, one, kind of why holdback on the buyback this quarter and then I guess how should we think about the pace going forward? And if I could just tag on one more there. Is there any chance that the special, could kind of come in at near last year's level, which is about $0.50?

Hey, Mike. It's Evan. Let me take that. Yes, so Q3 repurchase as we said, 2.2 million shares in the quarter. I think year-to-date as we said, we buyback almost 12 million shares. So certainly the pace fell off. We were at a much higher elevated pace as you know due to some of the -- also refinancing and excess proceeds we had that we put to work. So we've -- we basically at this point put forward and put to work all the excess proceeds from the recent issuance we had, the excess cash that we raised during that refinancing period. So, yes, I mean we expect it to slow down. As we’ve said, we're focusing on continuing the buyback with excess cash flow generation through the year. I think with regards to the special commentary of -- special versus our share repurchases, as you know, look, every year we sit down, we always say at the end of the year and we look at what excess cash flow looks like, I think as we’ve been calling out in the last couple of quarters, given the significant value we see in the stock, we’ve been utilizing a lot more than excess cash flow generation through the year for share repurchases. And so I think our plan is to continue to do that with the cash flow generation.

Okay. Very helpful. Thank you. And then just switching to advisory, were there any deals that kind of slipped this quarter into the fourth quarter? And then I appreciate all the color on the environment right now, but -- I would really appreciate some additional color on maybe how the fourth quarter is shaping up and kind of what your views as to how the year will end?

Sure. So, look, with regards to the third quarter, I would say, look, there's always deals that come and go, deals close earlier or faster than expected, always hard to predict. It's always been that way in our business and I suspect it always will continue. I don’t think anything specifically pushed out this quarter. I would say relative to some of the other quarters, we probably pulled into Q2 from Q3 more than we pulled in from Q4 into Q3. So a little bit of that happened in the quarter. But with regards to Q4, look, I think our view is we continue to think that the second half of this year will be stronger than the first half, understanding that we’re starting from a lower base in the first half of this year. I think we're talking about momentum, as we talked about the deal -- as Ken talked about the deal announcements for us specifically starting to pick up more significantly at the end of the second quarter into the beginning of the third quarter. Whether or not, how Q4 turns out will largely depend on whether or not those deals hitting Q4 or more likely in 2020. So that’s what we’re talking about, really the momentum going into 2020 being stronger at this point in time.

Okay. Thank you for taking my questions.

Our next question comes from Brennan Hawken from UBS.

Hi, Brennan.

Hey, good morning. Thanks for taking the question. Most of mine have been answered at this point. I just have one follow-up. You guys have spoken a little about the realignment here. And certainly appreciate that you want to sort of shift around and self fund for growth and that makes a lot of sense. I guess what I would say is, do you really think that you’re doing enough, right? To paraphrase, Ken, I think you had said basically that you guys lagged earlier this year. Now you feel better, you feel like you've sort of outperformed, so maybe you’ve brought a backup to sort of net neutral and the environment is okay. We all can see the magnitude of the pressure on the asset management business, which is certainly significant. And when we look at the blended margins versus your business mix, it certainly feels as though you’re lagging peers. So why not press harder? Why just stop at what's happening with looking at strategies that don't have underperformed, or aren't looking as good for growth, why not try to realign the real estate footprint, reduce some complexity on the corporate side, just incentive targets. Do something to drive margins higher. Why stop with just what you’ve done so far. A bit provocative, but figured why not throw it out there.

Hey, Brennan. It's Evan. Look, it's a great question. Look, as we spent a lot of time as we said and I think you're right, we were focusing on is the areas where we thought that we didn't have as much opportunity to create more value through those smaller subscale strategies and funds. And so it's sort of taking off, continue -- continuously, especially on the asset management side, looking at new strategies, creating new opportunities. And at some point in time you really have to just get -- its an evolution. You have to keep thinking about which ones do we not see as much opportunity in. where do we think the opportunity should be in the future. And I think we -- we did a hard look across the business, decided which ones we still think have good opportunity in there. And the other ones that we just didn't think were strong enough, we took the opportunity to cut it back. So I think, look, we are kind of went down that path. I think it was -- it's a fairly substantial move in our parts at this point in the time. We are not -- we’ve a lot of great opportunities within the platform, a lot of even some of the smaller ones here we think have great opportunities in the future. And so, for us, it's just about where we’re going to put the chips.

Yes, Brennan, let me just add to that. Look, I think one of the things which is always tough is saying what your true comps on? Whether it's advisory and the asset management side. And it's pretty simple, I mean on the advisory side, we're the only independent global platform that comes with an enormous number of benefits for our clients and in terms of our ability to generate the kind of returns we do in this particular business. But being global also means that not every market is going to perform well at the same time. And so what you're trying constantly to do is to balance decisions between wanting to maintain global, which is absolutely essential and really differentiating in terms of our franchise. Certainly as the only independent that is global, we're making sure that you can also balance activity levels, which may be booming in one place, North America and may be slowing in another parts of Asia or Europe or at different points in time. What you want to be sure of though, is everywhere you do have chips, you have an adequate expect -- you have a good expectation that there's going to be people and/or it's really critical to the infrastructure of the system. That's our positioning. That’s who we are. On the asset management side of the business, we have positioned our self I think extraordinarily well in strategies, which are better positioned for the change in the secular environment than virtually any other long only active equity asset manager. That's the positioning that we have. And investing in those strategies and growing them out is something that is something that we want to do and that’s going to -- that takes investment. You don't watch your strategy and have success in the year. It usually takes five years and not every strategy is successful, and we have a really good history of growing these businesses internally. And as you know, we said before, half our strategy investment or half of AUM is AUM that came from things that didn’t exist 10 years ago, and that -- that’s something that is very special about Lazard. So it's a global platform, comes with some additional cost perhaps, but at the same time makes it unique in the marketplace. It gives it tremendous durability. Its larger than any one individual and that's very special. And on the asset management side of the business, it gives us the ability to invest in scale, in areas where we really can make a difference. That's where we are.

Okay. Thanks for all the color and let me beat that dead horse.

There you go.

This now concludes the Lazard conference call.